There is little argument that Groupon, LivingSocial, and the endless stream of copycat flash sale sites are fundamentally changing the dynamics of how businesses market and advertise new goods and services. Many small and large businesses have enthusiastically embraced these discount services for their ability to attract scores of new customers and generate heavy sales in a short period of time. But not all are performing sufficient analysis on how the acquisition of a large volume of new customers during and after a discount can negatively impact loyalty, goodwill and retention of existing customers.
Weighing a discount sale service's impact on both current and newly acquired customers is critical, particularly in light of a 2010 study by Rice University's Jesse H. Jones Graduate School of Business that finds that one-third of businesses don't make money from Groupon promotions, and that consumers using Groupon don't make return visits, spend as much money or provide the same level of tips as the broader customer base.
In addition to the hit-and-miss business case, the fact is that certain promotions contain a high degree of risk with regard to customer goodwill. For example, a colleague of mine recently received a LivingSocial offer for a magazine subscription at 40 percent off its regular annual cost. This colleague was a long time subscriber to this magazine, and he had, unfortunately, sent in his annual renewal check at full price two days prior to receiving the discount offer. Needless to say he was less than pleased.
For any business using or considering a service like Groupon, this article offers key strategies on how to ensure existing customer loyalty, goodwill and retention does not suffer. The article will also compare these emerging services that target new customers through steeply discounted pricing relative to word of mouth marketing (WOMM) initiatives that tap into the existing customer base to attract new customers.
Create early warning system for existing customers
While a business never wants to take an action that will cause consumers to delay purchases, providing the existing customer base with a head's up via a dedicated communications channel such as email can earn considerable goodwill. By doing so, current customers can wait for the deal and feel they are being rewarded for being a loyal customer. A business could even take it one step further and incentivize current customers to spread the word to friends and family about the upcoming discount deal. Too many times a business' current customers find out about a Groupon deal after it was made available to new customers.
Ensure business can handle flood of new customers
While your business blissfully watches the proverbial cash register ka-ching over and over again as new discount customers flock to your business or Web site, it is important to not overlook existing customers who may encounter a less than stellar purchasing experience. Put in place the resources and infrastructure to ensure that existing customers do not find difficulty making purchases, delays in accessing customer service representatives, or that any company touch point makes them feel as if they are receiving a second-class experience.
Consider Groupon for new products and services
Many small businesses do not offer a single product or service, and thus have the flexibility to think strategically about which offering is the best fit for a Groupon discount. Offering the discount on a newer product or service rather than discounting an existing one, it is less likely to alienate existing customers and can even serve as a viral marketing tool for a new launch. Additionally, businesses can use discount services to breathe life into less popular service offerings, or those that were popular at one time but have faded among the existing customer base.
Strategically time the discount
Does your business have a seasonal component when many of your existing, loyal customers tend to make purchases? If so, customer loyalty and goodwill can be severely damaged if a Groupon deal is offered during a period immediately after this heavy buying period. Discounts can be more prudently used during periods when sales are seasonally sluggish, or conversely, periods of more intense competition as a way to capture new customers from competitors.
Discount services no replacement for WOMM
Deep discount sites can generate a short-lived sales spike, but businesses must be extremely careful to not use Groupon as a replacement for WOMM or customer loyalty programs. Instead, when profitable, discount services should be considered a tool in the marketing toolbox.
Research continues to extol the benefits of WOMM for growing the customer base and building customer loyalty, indicating time and time again that consumers trust recommendations from people they know above all other forms of marketing. A new study titled "Referral Programs and Customer Value," published in the January 2011 issue of the American Marketing Association's Journal of Marketing, reported that referred customers generated higher margins than other categories of customers and proved to be a financially attractive method to acquire new customers. Most importantly, as it relates to the relative benefits and drawbacks of discount services such as Groupon, customer referral marketing:
- Will not damage brand perception among existing customers unless there is a specific negative experience.
- Increases goodwill between company and customer, company and friends and family of the customer, and between customer and their friends and family.
- Delivers a business' best new customers vs. customers brought in by other marketing practices.
Groupon, LivingSocial, and the growing glut of copycat and localized deep discount services appeal to many businesses for their demonstrated ability to drive customer acquisition. But creating long term customer value requires an unwavering focus on customer retention, strategies, marketing, and support that ensure a positive customer experience and loyalty to the brand.
Deep discount services, like most marketing and advertising tools, can be effective if used properly. But generating sustained profits is not as simple as flipping the Groupon switch. To preserve customer loyalty, goodwill, and retention, businesses must take proper steps before, during and after running a deep discount service campaign. By doing so, the business can ensure that new customers are not acquired at the expense of current ones.
Trevor Shanski is founder of eWORDofMOUTH, a provider of online and social marketing solutions to national, regional, and local businesses.